The smoothed annualised return rate at which an investment grows from its starting value to its ending value over a given period.
CAGR is the rate at which an investment would have grown if it grew at a steady annual rate, accounting for compounding. It provides a consistent way to compare returns across different time periods and investment types.
If you invested ₹1,00,000 and it became ₹2,00,000 in 5 years, CAGR tells you the single constant annual rate that would produce that result — in this case, roughly 14.87% per year. It smooths out year-to-year fluctuations into one clean number.
Take the ending value and divide by the beginning value.
Raise the result to the power of (1 ÷ number of years).
Subtract 1 and express as a percentage.
CAGR accounts for compounding — each year's gains earn returns the following year.
CAGR = (Ending Value ÷ Beginning Value) ^ (1 ÷ Years) − 1Invested: ₹1,00,000
Ending value after 5 years: ₹2,01,136
CAGR = (2,01,136 ÷ 1,00,000) ^ (1/5) − 1
= (2.01136) ^ 0.2 − 1
= 1.1500 − 1
= 15.00% per annum